I first recommended TZOO last January at around $11. Of course, I had no idea in advance that this would be my number one pick for 2010. But, what to do with TZOO now after a nearly 300% rise this year?

Even though, I would never recommend investing in TZOO at these prices, my gut tells me to hang on to my investment a bit longer, simply because of the Groupon news. In case you haven’t heard, Google is about to pay $6 billion for Groupon.

Clearly, I think the valuation is utterly ridiculous for reasons mentioned in the above NY Times article. But in the world of valuations, especially for Internet businesses, anything goes. As long as you can imagine some future scenario, no matter how improbable, that appears to justify the valuation and you can convince some other “greater fool” to pay that valuation, whose to say what anything is really worth?

And since valuation is basically relative, I believe that TZOO, which only recently launched a local deals business, or Groupon clone, is the most similar to Groupon and has the best shot of replicating Groupon’s business successfully and rapidly. This is because TZOO’s business is already about local deals and it has 18.7 million subscribers in just the US (Note: Groupon only claims 17 million subscribers in the US). TZOO also already has a strong international presence.

So in the fantasy land of relative valuations, there really is no reason for TZOO to be worth only $700 million and for Groupon to be worth $6 billion when the differences in the business are really slim and their relative competitive metrics are about equal, as far as I can tell. In some sense, I’d say TZOO given its longer business experience in online deals, may even emerge as the leader in the new local deals craze.

You have to love bubble economics. If you can dream it, it is reality.

Disclosure: Affiliates of Envoy Global Research, and its principals, own shares in TZOO. All ideas, opinions, and/or forecasts, expressed or implied herein, are for informational purposes only and should not be construed as a recommendation to invest, trade, and/or speculate in the markets. Any investments, trades, and/or speculations made in light of the ideas, opinions, and/or forecasts, expressed or implied herein, are committed at your own risk, financial or otherwise.